U.S. stocks ticked lower on Friday, as the S&P 500 snapped a seven-session winning streak. Even so, the broader market averages still ended the week more than 1% higher across the board.
Real Estate, Healthcare, and Financial names led the gainers last week, while the Communication Services sector lagged.
Third-quarter corporate earnings kept rolling in last week and 84% of companies have exceeded profit expectations to date.
On the economic front, data was mixed last week. China’s third-quarter GDP growth fell short of expectations. In the U.S. numbers suggested that the Services sector is faring better than Manufacturing these days.
The Week Ahead
Earnings season is in full effect, with 165 companies in the S&P 500 on the reporting calendar this week. Among the big names scheduled to announce results are:
Monday: Facebook (FB)
Tuesday: Alphabet (GOOGL), Microsoft (MSFT), and United Parcel (UPS)
Wednesday: Boeing (BA), Coca-Cola (KO), and McDonald’s (MCD)
Thursday: Amazon.com (AMZN), Apple (AAPL), Caterpillar (CAT), Merck (MRK), and Starbucks (SBUX)
Friday: Chevron (CVX) and Exxon Mobil (XOM)
According to Refinitiv, aggregate S&P 500 profit is expected to grow 35% year-over-year in the third quarter. This is leveraged from a 15% revenue increase.
In economic action, October U.S. consumer confidence will be announced Tuesday, followed by durable goods orders on Wednesday. The first reading of third-quarter U.S. GDP is due Thursday, with growth expected to decelerate to 2.8%.
Finally, the core PCE price index on Friday offers a look at the Federal Reserve’s key inflation gauge. While Chair Jerome Powell and co. have stated their focus is more on job growth than inflation, Fed funds futures are pricing in a potential interest rate hike by June 2022.
Following the snap-back recovery in stocks last year from Pandemic lows, we believe that investment gains will be harder to come by in the coming quarters, given a slowing growth outlook and the prospect of higher interest rates. As a result, deciding what and when to buy can be challenging for any investor. However, the fact remains that attractive investments are out there if you’re willing to dig a little deeper.
One such Food producer is worth a closer look and is our Stock of the Week.
Stock of the Week: Darling Ingredients (DAR)
The company produces natural-based food and fuel products. The stock gained nearly 6% last week and we believe this outperformance can continue in the final months of 2021. Here’s why:
Darling is leveraged to push for “cleaner and greener” products. This was evident in August when management delivered quarterly results that surpassed expectations.
The company earned $1.17 a share in the second quarter. Revenue increased 41% from a year ago, to $1.2 billion.
Darling saw record cash flow from its Ingredients business in the period. It used the cash to repurchase $76 million of stock. Management also boosted forward guidance, given higher food and fuel demand.
Going forward, the company is operating in a space that has secular growth prospects and will likely provide a natural hedge to rising inflationary pressures in the broader economy.
Darling is currently valued at 18.6x expected 2021 earnings of $4.22 a share. which is a discount to the 69.8% average annual profit growth projected over the next two years.
Wall Street also has a favorable outlook for the company and all eight active analysts tracked by TipRanks have a Buy rating. The average price target of $99 reflects 26.1% upside potential.
In the meantime, Darling carries a Smart Score of 8/10 on TipRanks. This proprietary score utilizes Big Data to rank stocks based on 8 key factors that have historically been a precursor of future outperformance.
On top of the positive aspects mentioned already, the Smart Score indicates that shares have seen improving sentiment from hedge funds and financial bloggers.
FYI: This is just 1 of the 20+ stocks selected for the Smart Investor portfolio. That’s where we share more detailed insights on our weekly stock picks.
